Business Transformation in the Era of Unplanned Hybrid Clouds

© C O P Y R I G H T 2 0 2 0 4 5 1 R E S E A R C H . A L L R I G H T S R E S E RV E D.

Business Transformation in the Era of Unplanned Hybrid Clouds

C O M M I S S I O N E D B Y

S E P T E M B E R 2 0 2 0

A B O U T T H E AU T H O R

E R I C H A N S E L M A NP R I N C I PA L R E S E A R C H A N A LY S T

Eric Hanselman is the Principal Research Analyst at 451 Research, a part of S&P Global Market Intelligence. He has an extensive, hands-on understanding of a broad range of IT subject areas, having direct experience in the areas of security, networks, application and infrastructure transformation and semiconductors. He coordinates industry analysis across the broad portfolio of 451 Research disciplines, contributes to the Information Security and Cloud Native Channels, and is a member of the Center of Excellence for Quantum Technologies.

2C O M M I S S I O N E D B Y K Y N D R Y L

About this paperA Black & White paper is a study based on primary research survey data that assesses the market dynamics of a key enterprise technology segment through the lens of the “on the ground” experience and opinions of real practitioners — what they are doing, and why they are doing it.


B L AC K & W H I T E | B U S I N E S S T R A N S F O R M AT I O N I N T H E E R A O F U N P L A N N E D H Y B R I D C LO U D S

IntroductionThe concepts around hybrid infrastructure have become familiar to most enterprises. There’s a more sophisticated understanding of the use of public cloud now that we’re a decade along in its use. But the operational efficiency that real hybrid multicloud infrastructure could deliver still eludes most organizations. The reality is that many of them have arrived in a hybrid configuration without a specific plan or strategy. They became hybrid through a series of independent actions, usually well-meant but not well-coordinated or optimized for efficiency.

Kyndryl, formerly IBM Infrastructure Services, and 451 Research conducted a study to look at how users of hybrid environments are putting them to work, to identify the challenges that they’ve faced, and explore ways in which they can optimize how they’re delivering resources to their constituencies.

Key Findings• IT infrastructure is in flux and considered to be meeting less than half of the needs of the

businesses polled.

• IT teams are being tasked with a range of business imperatives – increasing innovation is the priority for most industry verticals.

• New modes of business need more than current infrastructure can provide – current infrastructure is not up to the task.

• The journey to greater use of cloud-based resources is underway.

• Many organizations have arrived at hybrid multicloud environments without a complete plan.

• Significant barriers exist to achieving operational efficiency.

• IT teams are doing well today but need help delivering systems that will meet tomorrow’s enterprise needs.

Methodology

451 Research conducted a study in which we asked a global panel of 1,805 senior business and IT decision-makers – who reported having experience in hybrid cloud infrastructure design and use – about their opinions on the state of their existing IT infrastructure and their plans for the future. It looked at 11 industry vertical sectors in North America, Europe, Asia-Pacific, the Middle East and Africa, and Latin America. The study was administered as a 21-question web-based study instrument in June 2020.



Transitions in Enterprise IT InfrastructureOrganizations were already in the midst of significant transition before this year’s upheaval. They were working through understanding how to maintain their competitive edge in a world where rapidly changing business requirements and technology transitions were forcing them to make complicated decisions. They needed to prepare for what was next and adapt their IT infrastructure to support it. That task now has much greater urgency and importance in a world where outcomes are harder to define. Organizations understand that transition is required and that a greater use of hybrid multicloud environments is necessary, and they face challenges in getting their current infrastructure and IT teams ready for that shift.

There is significant data showing strong desire for this transition. In a July 2020 451 Research study focused on cloud hosting and managed services, respondents expressed an interest in dramatically reducing their on-premises, traditional IT environments in favor of off-premises options. In fact, the study showed that 52% of IT leaders indicated their workloads will be primarily executed in a public cloud environment by 2022. This study digs into the reasons for this motivation and explores some of the challenges of deploying and maintaining hybrid clouds.

Figure 1: Primary workload execution venue, 2020 and 2022 (aggregate)Source: 451 Research’s Voice of the Enterprise: Cloud, Hosting & Managed Services, Workloads & Key Projects July 2020Q: Which of the following best describes the primary environment used to operate your organization’s [workload] today and in

two years?Base: Respondents with workloads/applications

46%

17%

15%

15%

4%

4%

9%

11%

12%

25%

14%27%

2020 2022

SaaS/hosted apps

IaaS/PaaS

Hosted private cloud

Hosted non-cloud

On-premises private cloud IT

On-premises 'traditional' IT

(n=432) (n=390)

52% of workloads will be primarily executed in public cloud environments by 2022

On-

Prem

ises

Off-

Prem

ises



Infrastructure Challenges to Transformational Change

Organizations face a number of challenges with their existing environments. Respondents in our study are concerned about the ability of their IT infrastructure to support future requirements, and they reported that they are expecting a significant level of transformation to support new business strategies over the next five years. Most businesses believe that the level of transformation required to support new business strategies is significant. On a scale of one to 10, 67% of respondents rated the anticipated level of transformation an eight or higher (Figure 2). This indicates that most respondents believe that upgrading their environments will require significant work to keep up with the advances necessary to support their business strategies. The requirements that businesses place on IT infrastructure continue to advance as markets and customer expectations continue to grow. An inability to support strategic business requirements could erode competitive positions.

Figure 2: Level of transformation required to support new business strategiesSource: 451 Research custom studyQ: How would you rate the level of transformation required in your organization’s IT environment to support new business

strategies over the next five years? (Single-select response)

17% 21% 29% 18% 7%

2%

2%

2%

2%

1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Level of transformation required in your organization’s

IT environment

10 - Significant 9 8 7 6 5 4 3 2 1 - Minimal



Underscoring this concern is that most respondents don’t believe their existing IT infrastructure is ready to meet modern-day business needs. This response reinforces the expectation that current infrastructure isn’t capable of doing what’s being asked of it – 70% of respondents reported that current infrastructure is able to address less than half of modern needs (Figure 3).

Figure 3: The ability of IT infrastructure to meet modern-day business needsSource: 451 Research custom studyQ: To what extent is your IT infrastructure ready to meet modern-day business needs? (Single-select response) Base: All Respondents (n=1,805)

To test the alignment of infrastructure with expected transformation, we looked at the correlation between the perceived state of installed infrastructure and the extent of transformation necessary to meet business requirements. As Figure 4 shows, they correlate well; those that said higher levels of transformation are needed also indicated that less of their existing infrastructure is able to meet their modern business needs.

6%

24%

46%

24%

<1%

It is ready to meet all of our needs

It is ready to meet most of our needs

It is ready to meet less than half of our needs

It is ready to meet very little of our needs

It is ready to meet none of our needs



Figure 4: Correlation of transformation and ability to meet needsSource: 451 Research custom study

Among the interesting aspects of this data is one point of misalignment. A significant number of those reporting a transformation level of three (i.e., minimal to moderate change required) believe that their infrastructure meets less than half of their business needs. This is a contradiction that is large enough to be outside of our margin of error. According to the data, respondents are saying that they know what they have in place won’t meet a lot of their future requirements, yet they believe that the effort required to fix this situation is small. This could suggest that some IT executives find it difficult to fully identify the effort they face in transforming their environments due to the complexity of the issues. Infrastructure is only part of the equation in transformation. Technical skills have become an increasingly ephemeral commodity as new forms of infrastructure are created. The need to refresh team skills is happening on ever shorter cycles. We’ve seen a significant shift in the level of acute skills shortages for cloud platforms in our Voice of the Enterprise studies, and there is evidence of that in this study, which we’ll discuss further on.

91%

73%

32%22%

9% 9% 4% 3% 3% 2%

9%

27%

53% 73%

48% 45%

31% 28%11%

4%

9%5%

43%41%

46%45%

55%55%

6% 6%19% 25% 31%

38%

Minimal 2 3 4 5 6 7 8 9 Significant

All Most Less than half Very littleInfrastructure meets needs:

Level of transformation required



Imperatives for Technology TeamsInitiatives to improve IT infrastructure face many hurdles in addressing the needs of today’s businesses. Successful businesses routinely task IT teams with imperatives that are difficult to fulfill. Our study looked at a dozen key initiatives that we identified as challenging and asked respondents to identify those that they are working on and rate their IT department’s ability to deliver on them with their current infrastructure. Increasing innovation was the leading category for almost all industry verticals. The exceptions were in financial services and telecom, in which it ranked second. Increasing employee productivity ranked second overall, and the next five imperatives were closely packed for third.

The perspectives about ability to deliver were very similarly ranked, with just over 40% rating a three out of five for all categories (Figure 5). This represents a strong ambivalence about the capabilities of IT teams to support initiatives deemed vital by their businesses.

Figure 5: Ability to deliver on business initiativesSource: 451 Research custom studyQ: With the IT infrastructure you currently have in place, please rate your IT department’s ability to deliver on the following

business initiatives. (Multi-select response)Base: All Respondents (n=1,555)

17%

17%

16%

16%

16%

16%

15%

15%

15%

15%

14%

14%

20%

21%

20%

19%

19%

19%

20%

20%

20%

19%

19%

19%

42%

40%

44%

42%

42%

44%

43%

44%

41%

44%

41%

42%

17%

17%

16%

17%

17%

17%

17%

16%

19%

17%

19%

21%

5%

5%

5%

5%

6%

4%

5%

5%

4%

4%

7%

3%

Develop new digital business/revenue streams

Deliver services or products leveraging the Internet of Things (IoT)

Deliver data-driven business intelligence and analytics

Open new markets

Improve product or service competitiveness

Improve products/services or deliver new ones

Optimize supply chains

Increase Innovation

Save costs or increase return on investment with new, innovative IT approaches

Increase employee productivity

Shorten time to market

Improve (external) customer satisfaction or experience

5 - Extremely well 4 3 2 1 - Not at all



Additionally, we explored the roadblocks that respondents felt could prevent their organizations from achieving these imperatives. The leading challenge respondents identified was lack of budget, an issue that is often cited in our Voice of the Enterprise studies. The next two most-cited issues raise interesting ideas about the challenges faced by IT teams as they work to advance their organization’s business functionality. Business process issues and a skills gap for new technology were second and third, notably ahead of outdated infrastructure, unclear strategy, outdated applications and a lack of executive sponsorship. This indicates that respondents believe there are strong, internal issues that infrastructure upgrades alone will not be able to remedy. Organizations will have to manage these obstructions to successfully transform their operations. We look at respondents’ approaches later in this report.

Figure 6: Challenge blockersSource: 451 Research custom studyQ: What are some ‘blockers’ preventing your organization from delivering on these challenges? (Multi-select response)Base: All Respondents (n=1,805)

38%

37%

34%

32%

30%

30%

23%

1%

Lack of budget

Business process issues

Lack of the right skills for new technology

Outdated infrastructure

Lack of clear IT transformation strategy

Outdated applications

Lack of executive sponsorship

Other



Innovation is Important, Engagement by IT is EssentialWith innovation scoring so high as a business imperative, it was also important to understand the relationship between innovation and IT operations. We asked our panel to describe the role that innovation plays in IT decision-making in their organizations. The direct answer was not surprising, but the correlation with other data in the study provides some important insight.

Figure 7: Role of IT in enabling innovationSource: 451 Research custom studyQ: Which statement best describes the role IT plays in enabling innovation in your organization? (Single-select response)Base: All Respondents (n=1,805)

Just under a third of respondents said that innovation is a primary factor in their activities. Some 11% said that innovation is outside of the scope of their responsibilities, which aligns with anecdotal perspectives and data from other studies. While innovation is often a priority, IT teams in some organizations aren’t engaged to foster its enhancement.

The important insight from this data came from correlating innovation with the perceived readiness of IT infrastructure to support modern business needs. For those that reported their infrastructure was ready to support all of their business needs, innovation was a primary factor in their activities. Granted, this was only 6% of all respondents, but it’s an indicator that considering innovation in IT operations could lead to creating a better foundation for the business.

11%

25%

33%

31% Innovation is outside of the scope of our responsibilities

Innovation is considered in our activities

Innovation is important in our activities

Innovation is a primary factor in our activities



Hybrid as an Unplanned or Deliberate DestinationAs we illustrated in Figure 1, there is a strong desire by enterprises to engage a broad range of infrastructures to address their business requirements. Earlier studies have also shown that this shift often takes place without a formal plan. Much of the extension into new environments is driven by immediate business need.

The online presence of modern enterprises is a good example of the mix of elements that pull their operators into hybrid situations. Because they integrate many different functions – such as customer relationship management systems, marketing systems, analytics engines and content that may be provided by a collection of partners – it is highly likely that web environments will require components that are hosted in different locations. To provide the best customer experience, parts of the web environment may be hosted closer to the elements with which they interact. Certain video content or analytical functions may only be available with a particular provider. Data will need to be located closer to where it is used.

All of these factors mean that organic growth will create a hybrid world unless organizations strictly control the organic growth of their IT, which may unreasonably constrain their ability to respond to business needs. If an imposed change happens, such as a merger or acquisition, a hybrid outcome would seem almost certain. And this is before organizations consider more direct requirements for hybrid, such as infrastructure diversity. The unplanned aspect of many hybrid environments comes from the reactive, rather than strategic, way in which these extensions occur. It can lead to complicated infrastructures with unwieldly and inefficient management systems.

Our study respondents described hybrid environments they have used, have in use and expect to use. We broke this down into three types: traditional IT, cloud-enabled and cloud-native. Figure 8 shows mean scores for the percentages that were reported for each type and time frame. Corresponding to the workload migration data shown in Figure 1, traditional IT shows an expected steady decline. Cloud-enabled, a form that most organizations are familiar with, shows steady utilization. In contrast, respondents expect cloud-native to show more robust growth in the near future. These aspirations may well be driven by expectations of the infrastructure they need to support challenging future business imperatives.



Figure 8: Workload environment trends and indicatorsSource: 451 Research custom studyQ: What percentage of your workloads run in each of the following environments?Base: All Respondents (n=1,805)

When we probed about the progress being made in moving business-critical components out of traditional environments, the respondents were more cautious. As many as 71% said that less than half of their business-critical workloads (like SAP and Oracle) exist in public clouds. Strong aspirations for migration are meeting with the complexities of operating in the different environments that hybrid multicloud entails.

34.632.0 33.5

39.6

32.727.7

45.6

32.3

22.1

Cloud-native Cloud-enabled Traditional IT

6 months ago Today Plan to be here in next 1-2 years



Figure 9: Business-critical legacy workload deployment in specific public cloud instancesSource: 451 Research custom studyQ: To what extent are your business-critical legacy workloads (such as SAP or Oracle applications) already deployed in

specific public cloud instances? (Do NOT include transitions to new databases or to SaaS-based applications such as Salesforce or Workday.) (Single-select response)

Base: All Respondents (n=1,555)

The complexity of managing these new environments was captured in the responses to a question about the number of infrastructure resources that could be managed through a single management screen. Over a third (34%) said they haven’t integrated their management systems, with each resource having its own management environment. Only 28% of respondents said they have consolidated management in the form of a single screen to manage their various infrastructure elements. This complexity could lead to significant staffing challenges if administrative staff either have to support multiple systems or separate IT teams are required for each.

37%

34%

19%

10%

Some (less than 50%) of our business-critical workloads (like SAP and Oracle) are already

deployed in a public cloud environment

None of our business-critical workloads (like SAP and Oracle) are deployed in a public cloud environment

Most (over 50%) of our business-critical workloads (like SAP and Oracle) are already

deployed in a public cloud environment

All of our business-critical workloads (like SAP and Oracle) are already deployed in a public cloud environment



What’s Needed for Efficient HybridHybrid environments (and their operation) are relatively new for most organizations. Traditional IT infrastructures evolved for straightforward management with dedicated IT teams. Physical systems were reasonably standardized, and a popular virtualization management system predominated. As enterprises move to cloud and SaaS-based systems, these patterns don’t carry over, and IT executives are faced with the quandary of either cross-training existing teams on new operational processes or building new, distinct teams. Our statistics on the lack of integrated management show that this hasn’t been easy to do at the systems level, and we speculate that the personnel and training situation is just as complicated.

The answer for more efficient operation in hybrid environments is the same as for other areas in IT. Organizations need a way to standardize management actions across the various parts of their hybrid environments. That means creating resource abstractions and then building in the automation to remove the toil of common and mundane tasks. That integration works just as well with hybrid IT as it has in other complex operational environments. And this is something that the study respondents expected as well. They cited more efficient operation and improved security as the top two values for integrated management (tied at 59% in a multi-select question). For organizations that haven’t progressed to more sophisticated management systems, the larger challenge can be simply understanding how to make the transition.

Our study explored approaches to modernizing business-critical applications and workloads. Respondents clearly showed a desire to leverage new infrastructure approaches to aid their transformation. As shown in figure 10, only 9% felt that they could leave things as they are. Half of respondents said they expect to move to off-premises environments. This opens the question of how they expect to efficiently manage their newly hybrid environments.



Figure 10: IT infrastructure approach to business-critical legacy applications and workloadsSource: 451 Research custom studyQ: Which of the following best describes your organization’s overall IT infrastructure approach to business-critical legacy

applications and workloads going forward? (Single-select response)Base: All Respondents (n=1,805)

41%

18%

17%

14%

9%Retain. Keep current applications unchanged on existing on-premises infrastructure.

Repurchase and shift. Replace current on-premises applications with SaaS or off-premises hosted versions of the applications.

Refactor and shift. Re-architect/redesign existing applications using cloud-native frameworks and deploy in off-premises cloud environments.

Lift and shift. Migrate existing on-premises applications to off-premises/cloud environments with minimal changes to the application code or business logic.

Modernize. Retain existing applications on-premises but move to more modern application and infrastructure architectures, including the use of APIs, microservices and container technologies.



Expectations for the Path ForwardTwo principal difficulties that organizations face with transitions to new technology are understanding how it will best be used by their business and then assessing the skills needed to support it. Because most organizations have already begun using hybrid multicloud, they have made some progress on both of these points. They’ve done initial deployments and, based on the readiness answers discussed earlier, are beginning to understand where gaps exist in their infrastructure and skills. This means that they’ve typically formed thoughts about hybrid multicloud’s benefits to their business and determined what skills are necessary to support this new technology. For our study, we asked respondents about their plans for improving their environments in two areas: management and application and workload modernization.

We first benchmarked perceptions of their infrastructure management effectiveness to understand the extent to which they need change. A hearty 83% said they could be more effective, with 31% saying that they could be much more effective. This indicates an understanding of the challenges referenced in the earlier statistics on the relatively poor readiness of their existing infrastructure. In another interesting data point, 11% said that they were as effective as they could be (as opposed to as effective as they want to be) managing infrastructure. Behind this could be the limitations of staff skills and business processes identified in this study. Just 5% have achieved a level of effectiveness that satisfies them.

Figure 11: Effectiveness of IT infrastructure managementSource: 451 Research custom studyQ: How effectively do you feel that your IT infrastructure is managed today? (Single-select response)Base: All Respondents (n=1,805)

52%

31%

11%5%

We could be more effective

We could be much more effective than we are today

We are about as effective as we can be

We are as effective as we want to be



We asked respondents to comment on the path forward for migrating existing workloads and applications and for managing their increasingly complex infrastructure. The data suggests that most businesses are seeking help from third parties to help manage their business transformation. For management of infrastructure, 76% of respondents indicated they would use partners or rely on hosted, managed or SaaS implementation (Figure 12).

Many organizations have had good experiences with using CRM and ERP applications delivered through service providers, and this could have influenced this result. Those SaaS options wouldn’t be possible for more customized or complex application environments and would displace existing management systems. That could be the reason for the second path for both: working with a partner in a longer-term project. For management improvements, that was a full four points higher than taking on the task themselves.

These responses likely reflect previous experiences that the respondents have had working with service provider partners. This is a path that can have a double benefit of delivering skills that are lacking and providing an external perspective on improvements in processes that can be difficult to catalyze internally.

Figure 12: IT infrastructure management improvement plansSource: 451 Research custom studyQ: What are your plans to improve the management of your IT infrastructure? (Single-select response)Base: All Respondents (n=1,805)

Respondents showed a similar reliance on third parties regarding their plans for migrating existing workloads and applications; 84% said they would use partners in some capacity or employ hosted, managed or SaaS implementation. Although only 15% indicated they would do the work themselves, fully transferring infrastructure or business functions to a service provider partner is a much more dramatic step and, in both cases, received lower preference. These would generally be a much more significant undertaking and could involve the transfer of job responsibilities.

25%

24%20%

14%

13%4% We will use a hosted, managed or SaaS implementation

for applications that use that infrastructure

We will use a partner for a longer-term project

We will undertake the improvement ourselves

We will use a partner for a one-time engagement

We will move that infrastructure to a partner

We do not plan to improve our management systems



Figure 13: Optimize IT plans when migrating existing workload and modernizing existing applicationsSource: 451 Research custom studyQ: What are your plans to optimize your IT when migrating your existing workload and modernizing existing applications?

(Single-select response)Base: All Respondents (n=1,805)

The respondents indicated that some action was needed to improve their environments and processes, and they expressed needing outside assistance to address the issue. There is a clear need for change to keep their businesses competitive, and the lingering question is how rapidly they’ll act to make those changes.

22%

21%

20%

15%

12%

9%

<1%

We will use a hosted, managed or SaaS implementation of that business function

We will use a partner for a longer-term project

We will use a partner to manage parts of the data or application environment

We will undertake the work ourselves

We will use a partner for a one-time engagement

We will move that business function to a partner

Other



ConclusionsOrganizations have an opportunity to dramatically optimize and transform IT and improve their operational efficiency while building a foundation that can empower them to compete successfully. If they plan wisely and select service provider partners that understand their business and effectively address their needs, they can accelerate their journey to a more optimized, agile and capable infrastructure that can amplify the skills of their existing teams.

To reach greater levels of efficiency, organizations can take some concrete steps:

• Review and revise processes and procedures – operating methodologies that work in on-premises environments will need to be adapted to the realities of hybrid multicloud worlds.

• Evaluate infrastructure performance – only 33% of respondents reported a regular review process for optimization; 28% wait until performance problems crop up.

• Assess and align skills – expecting to hire personnel to fill skills gaps is becoming a less viable strategy. Understand where team strengths are and leverage partners or services to fill gaps.

• Engage skilled partners – putting partner experience to work is a clear preference for study respondents and should be a path to greater efficiency.

To learn more, visit www.kyndryl.com.

http://www.kyndryl.com

About 451 Research451 Research is a leading information technology research and advisory compa-ny focusing on technology innovation and market disruption. More than 100 ana-lysts and consultants provide essential insight to more than 1,000 client organi-zations globally through a combination of syndicated research and data, advisory and go-to-market services, and live events. Founded in 2000, 451 Research is a part of S&P Global Market Intelligence.

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Business Transformation in the Era of Unplanned Hybrid Clouds

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